Cap Rate Calculator
Find a rental property's capitalization rate from its annual rent, operating expenses and purchase price — plus the net operating income behind it.
Reviewed by the CalcCafe editorial team · Last updated 1 July 2026 · How we test our tools
Example
A property renting for $24,000 a year with $8,000 in operating expenses has a net operating income of $16,000. On a $250,000 purchase price, the cap rate is 16,000 ÷ 250,000 = 6.40%. Paying less for the same NOI raises the cap rate; paying more lowers it.
How it works
Net operating income (NOI) = annual rent − annual operating expenses. Capitalization rate = NOI ÷ purchase price × 100, expressed as a percent. Operating expenses exclude mortgage principal and interest, so the cap rate reflects the property's unleveraged yield.
Good to know
Capitalization rate — cap rate for short — is the workhorse metric investors use to size up income property at a glance. It answers a single question: if you paid all cash, what annual return would this building's operating income represent? Because it strips out financing, it lets you compare a duplex, a strip mall, and a fourplex on the same footing, regardless of how each deal is funded.
The number hinges on net operating income, not gross rent. NOI is the rent left after real operating costs — property taxes, insurance, management, repairs, utilities you cover, and a vacancy allowance — but before mortgage payments, depreciation, and income tax. Getting NOI honest is where most beginner estimates go wrong: leaving out vacancy or under-budgeting maintenance inflates the cap rate and makes a mediocre deal look strong. Feed this tool a realistic full-year expense figure, not a best-case one.
There is no universal "good" cap rate. Higher cap rates (say 7–10%) usually signal more risk, older buildings, or softer markets, while prime properties in strong metros often trade at 4–5% because buyers accept a lower yield for stability and appreciation. Rates also move with interest rates: as borrowing costs rise, buyers demand higher cap rates, which pushes prices down for the same NOI.
Treat the result as a screening estimate, not a valuation or investment advice. It ignores financing, closing costs, capital expenditures, tax effects, and future rent growth. Use it to shortlist and compare deals, then run a full cash-flow and financing analysis — and consult a qualified professional — before committing.
Frequently asked questions
What is a good cap rate for rental property?
It depends on the market and risk. Many investors look for 5–10%; lower rates (4–5%) are common for premium properties in strong metros, while higher rates often reflect older buildings or riskier locations. There is no single right answer.
Does the cap rate include my mortgage?
No. Cap rate is based on net operating income, which excludes mortgage principal and interest. It measures the property's unleveraged return so you can compare deals regardless of how each is financed.
Is my data uploaded anywhere?
No — this calculator runs entirely in your browser. Your inputs never leave your device, and it works offline once loaded.
Is this calculator free?
Yes, completely free with no sign-up and no limits.
People also ask
How do you calculate cap rate?
Subtract annual operating expenses from annual rent to get net operating income, then divide NOI by the purchase price and multiply by 100. For example, $16,000 NOI on a $250,000 property is a 6.4% cap rate.
Is a higher or lower cap rate better?
It depends on your goals. A higher cap rate means more income relative to price but often more risk; a lower cap rate usually reflects a safer, higher-quality asset with more appreciation potential. Neither is universally better.
What expenses count toward net operating income?
Property taxes, insurance, management fees, maintenance and repairs, utilities you pay, and a vacancy allowance. NOI excludes mortgage payments, depreciation, capital improvements, and income taxes.
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Sources & references
These tools follow our methodology and provide educational estimates only — verify important figures with a qualified professional.